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south african coal continued Africa's energy and the government wants to reduce this substantially." Ultimately, though, it may not have a choice. "To keep up with demand Eskom needs two or three more Medupi's. There is enough coal in the ground for up to 10 more stations," Prevost said. Development & Infrastrucure The key to South Africa's coalfields, therefore, is its own energy needs, rather than foreign demand. So crucial is power supply that it is now driving the development of potentially rich, yet geographically isolated coal deposits in the country's northern hinterland. The first of these is the Waterberg coalfield in the Ellisras Basin in the Limpopo province. It holds an estimated 50 billion mt, of which about a quarter could be extracted using opencast mining. Up to now, however, it has been the source of limited activity. "The Waterberg Coalfield has great potential for coal mine development," said Neil McKenna, director at Venmyn Deloitte in Johannesburg. "At the moment there's only one mine, Grootgeluk, which serves the Matimba power station and will also contribute to the Medupi power station under construction. The reality is they could build two or three more similar-sized stations. The amount of coal there is quite extraordinary." The biggest hindrance to development is the region's relative isolation. It has few railway connections and is a long way from Richards Bay. The quality of coal is also lower than that found in the Highveld. "It is low quality, but can be upgraded through washing," said McKenna. "It has massive potential to supply local power station feedstock and for export thermal and metallurgical coal. The problem is the lack of infrastructure. In spite of the fact that it is called 'Waterberg,' there's a lack of water in the region, being located in one of the drier parts of the country." According to McKenna, another region that could benefit from an unshackled energy policy is the Soutpansberg coal basin, along the northern border with Botswana. "The Soutpansberg is another area with significant potential. It has very high quality coking coal but is historically an area that has been ignored because of its inaccessibility and lack of infrastructure." Even if policy were to be implemented tomorrow, however, it would still be a lengthy process before the region became a April 2013 significant coal producer. "Even if infrastructure is improved, development is still five to 10 years away. Large mining projects have a long lead time," he said. The formidable challenges have inevitably constrained the ability of mines to raise capital. "A lot of our work is concentrated on the juniors," McKenna said. "Eskom has made a commitment to source more coal from smaller producers. The problem is raising capital for these operators in the current market and environment. South Africa particularly is not proving a very attractive destination right now." Should the right policies be put into place, however, this could change fairly rapidly. "If independent power producers were cleared to go ahead, a lot of projects, particularly smaller players, could take off." If there is a bright spot on this gloomy horizon, it's that Transnet, the stateowned logistics company, appears to be moving forward on several infrastructure projects that will have a profound impact on the country's ability to export coal. Last year, Transnet announced a $32billion investment program, the Market Demand Strategy, to revamp and expand its ports, rail and pipeline infrastructure and equipment. About two-thirds of the required funding will be raised from internal resources, while the remainder will be raised through various sources in the debt capital markets. Although industry tends to view plans from state entities with a jaundiced eye, it does appear that this one may be gaining momentum. In March, the China Development Bank said it would loan Transnet about $5 billion, almost half its borrowing requirements. It's possible that further such announcements will follow. China has lagged India in purchases of South African coal, but is eager to catch up. In 2011, South Africa's shipments to China, the world's largest coal consumer, rose 88% to 12.26 million mt in the first 11 months of 2011, according to Bloomberg. But like the rest of the country's customer base, it has to temper its demand with lack of rail and port infrastructure. Chinese firms take around 2 million mt a month of South African thermal and coking coal, or up to a third of South Africa's total coal exports from the Richards Bay Coal Terminal. China has a strong incentive to prod the dozing beast that is Transnet into putting its plans into practice. Last year, China agreed to sell 96 much-needed loco- motives to Transnet for $400 million. And, recently Chinese shipping firm Chery said it was in negotiations with Transnet to build a ship repair facility at Richards Bay. Growing Export Capacity Currently, Richards Bay Coal Terminal has a nameplate capacity of 91 million mtpy. However it ships substantially less than that. In 2012, it managed 68 million mt. Exporters have blamed the low output on Transnet's lack of rail capacity; however, Transnet counters that the major shareholders in Richards Bay have used their monopoly to keep out small producers, preventing them from using the facility. Because of this, Transnet has begun working on building a new, rival coal terminal adjacent to the existing facility in Richards Bay harbor. The new port will have the capacity to export 14 million mt a year, and stockpile up to eight grades of coal. Also in the works is a new 146-km line to be built between Lothair, in South Africa, and Sidvokodvo, in Swaziland, which will reroute much of the general cargo traffic that now clogs up the coal line. The new link will divert general freight currently being moved on the Ermelo-Richards Bay line through Swaziland, thereby increasing the capacity of South Africa's constrained coal channel from Mpumalanga to the Richards Bay Coal Terminal to what Transnet CEO Brian Molefe said would be "close to 100 million mt." Currently, the coal line has the capacity to move about 72 million mt—well below the 91-million-mt nameplate capacity of Richards Bay. The line is expected to be commissioned in 2016. This diversion will also allow for an increase of traffic from the Waterberg. Transnet's own calculations show the region will require capacity of between 80 million mt and 135 million mt for both local and export markets over the long term. Finally, Transnet is also looking at short-haul feeder lines that will supply local power stations. At the moment trucks haul much of the country's coal—much to the annoyance of commuters. Should these plans be implemented, they would unlock substantial value now trapped in the earth of central and northern South Africa. "Given that South Africa has massive, and I mean truly massive, coal reserves, the majority of the country's power will come from coal in the foreseeable future," said McKenna. www.coalage.com 61